Standard & Poor's Ratings Services said it has lowered its long-term rating on Pawtucket Housing Authority (PHA), R.I.'s. series 2010 capital funds housing revenue bonds by one notch to A-plus from AA-minus.
The outlook is negative.
The lowering of the rating reflects Standard & Poor's view of these weaknesses: the reduced capital fund program appropriations by Congress, the allocation formula changes involving capital fund program monies, and the lack of a secondary security for bondholders.
The aforementioned weaknesses are offset by Standard & Poor's view of these strengths: the strong security of pledged federal public housing modernization funds that PHA receives annually from the U.S. Department of Housing and Urban Development (HUD), the current 2.28x debt service coverage (DSC) based on 2013 allocations, the anticipated DSC of at least 1x through maturity, the demonstrated HUD support for the transaction, the fully funded debt service reserve fund sized at maximum annual debt service, and the transaction's sound legal structure.
"The negative outlook reflects our view that DSC on the bonds could fall below 2x by 2015," said Standard & Poor's credit analyst Moraa Andima. "If DSC does not continue to decrease in 2014, and appropriation levels improve, coverage may improve as well, leading to rating stability. However, if overall capital fund appropriations continue to decline, in turn further reducing DSC, an additional lowering of the rating is likely." The 2010 proceeds have been used to finance acquisition and construction costs involving capital improvements at four of PHA's seven developments.
